Friday, 20 October 2017

Transgressions in the Banking Sector Continue Unabated

In today’s post the focus will be on the banking sector and,
by focusing on three current issues, provides an overview of recent
developments within this particular sector. By looking at the issues
surrounding Barclays, HSBC, Standard Chartered, Lloyds, and RBS, a picture will
be painted that details the need to ask much deeper questions about the role
the banking sector plays within society and, perhaps more introspectively, the
relationship between big business and humanity.

Going through the issues in no particular order, the first
stop in today’s journey takes us to Barclays, with the news emerging that Red
Kite Management, the world’s largest metals hedge fund, is suing the British
Bank for ‘alleged
market abuse in the copper market’, which it claims has cost the company at
least £650 million between 2010 and 2013. The company’s claim, according to
documents filed with the High Court, is that the Bank allowed some of its staff
to share confidential information with the Bank’s proprietary traders on the
floor of the London Metal Exchange (LME), with the result being that the
traders were effectively betting
against their own client. As this story has just broken, both parties are refusing
to comment publically, but the inference is that Barclays is under considerable
pressure from a number of sources. The LME simply stated that anyone found to
be in breach of the rules and regulations of the Exchange will be subjected
to disciplinary proceedings, whilst we know from other posts here in Financial Regulation Matters that the
bank is facing charges
of fraud over its connections with Qatar and its funding of a survival
package at the height of the Crisis, and also that the Bank’s CEO, Jes Staley,
is operating under incredible pressure because of his treatment
of whistle-blowers; additionally, the Bank is mired in the LIBOR rate
fixing scandal, with it reaching a number
of settlements on both sides of the Atlantic totalling hundreds of millions
of Pounds and there being the real
possibility of more pain to come for Barclays and a whole host of other
banks. If we were to take this issues in isolation, then it would not be
farfetched to suggest that Barclays is in somewhat of a crisis, although nobody
is suggesting that – the reason being that these issues are hardly unique to
Barclays within this sector.

One of the largest banks in the world – HSBC – has found
itself at the forefront of money laundering claims in South Africa, alongside
Standard Chartered. We have looked at this issue of HSBC’s global
connection to the facilitation of money laundering, so perhaps the
following will be of no great surprise. The Banks are allegedly guilty of
allowing illegal funds to pass through their networks, for the benefit of what
UK Chancellor Philip Hammond (who himself has been critiqued here
in Financial Regulation Matters)
described as the ‘Gupta-Zuma
criminal network’ – it is interesting to note that even though the links between the
infamous Gupta family and South African President Jacob Zuma are well known,
Hammond’s seemingly official condemnation of the leader of a sovereign nation
represents the reality that leading nations are quick to rebuke those who
cannot defend themselves; in fact, Hammond is actively
leading the fight by referring the issue to the Serious Fraud Office, the
National Crime Agency, and the Financial Conduct Authority. Furthermore, the
FBI are focusing in on two
of the Gupta Brothers, which seems to suggest that there is a concerted
effort to tackle money laundering in this particular region, but we have heard
very little about the global laundromat scandal that has many tentacles,
apparently, within Russia; though all money laundering should be eradicated,
the fervour with which this investigation is being pursued needs to be
considered. This comes on the back of the collapsing of Bell Pottinger and the
internal resignations within KPMG regarding their collaborations
with the Gupta family, which should suggest that if either of the Banks are
found to be complicit in facilitating money laundering by the family, then
there will be massive consequences; Lord Peter Hain, the former Labour Cabinet
Minister and now Non-Executive Director at African Potash, and someone leading
the charge based upon his feeling that he is ‘pained
by the betrayal of values of the freedom struggle that is occurring under the
political leadership and its business cronies in South Africa today’, has
suggested that he is not accusing the banks of complicity, but that he wants
them to ‘help recoup any funds that have left the country by illicit means’ –
what this confusing statement means is another matter, because that would
suggest that the banks have had at least some involvement with the movement of
illicit funds. These issues relate, potentially, to a cultural issue whereby a
Bank is only interested in what it
can make, with absolutely no regard to its effect nor even its perception to the outside world. Before the
post concludes, there are two examples, which provide updates to a collection
of posts here in Financial Regulation
Matters, which demonstrate this sentiment perfectly.

There have been a large number of posts in Financial Regulation Matters that have
covered the issue of compensation, particularly in relation to Lloyds and RBS.
It is not necessary to go over either of these issues in detail here given the
amount of exposure within the blog previously, but recent developments hint at
the reality of the situation; if one believes that having compensation
confirmed is a victory in this field, then they are sadly mistaken. Looking at
Lloyds first, the compensation package owed to victims of Lyndon Scourfield and
the Reading-based Unit that purposefully destroyed SMEs for profit, has been delayed
again, with the suggestion being that victims will not be compensated in
full until 2018 – nearly half of those affected have not even yet received a
formal offer. Despite the best efforts of the bank’s most recognisable victims,
who has bravely suffered the indignity
of revealing the extraordinarily harrowing but private effects of the crime,
little is being done. In a similar vein, victims of a similar crime at RBS by
way of its ‘Global Restructuring Group’, have recently found out that the Bank
has inexplicably altered its definition of those who can claim to be victims,
with it being suggested that thousands
of SMEs are now excluded from the £400 million compensation scheme. This is
not surprising, really, because we have spoken before
how, in reality, £400 million is hardly likely to be anywhere near enough to
compensate for the damage caused. Despite RBS boss Ross McEwan’s quite repulsive
statement that he is tired of small businesses ‘badmouthing’
the Bank, and also despite the best efforts of the FCA to bury
the issue, it is being reported this week that the Authority has relented
and allowed Nicky Morgan’s Treasury Select Committee to review the
previously withdrawn report that is likely to be particularly damaging to RBS.
The two cases demonstrate, quite clearly, that Banks have little interest in
how they are perceived.

There is a reason why this is. Quite simply, the majority of
banks (arguably all of them), are not ‘social citizens’. In fact, it can be
argued that they are quite the opposite, and represent the antithesis of what a
progressive society should be aiming for. If we look at these stories above,
none of them are shocking. It is not shocking to hear of a bank rigging the
marketplace and acting against its own clients. It is not shocking to hear of
Banks actively facilitating money laundering for governments and leading
business elites. It is not shocking to hear that not only are victims going
without redress, but they are being victimised for being victims of crimes. There are many philosophical
questions that could be raised; for example, we could ask whether these actions
are demonstrative of a cultural phenomenon within the institutions themselves,
of a wider phenomenon linked to Capitalism, or based upon something more
tangible like regulatory failure. However, whilst all of those considerations
would be valid, they unfortunately cloud the reality that these institutions
act in a parasitic manner and are, when viewed in longer terms than an economic
cycle or two, a blight on society. It is not right that such continued
transgressions are viewed as ‘par for the course’, or demonstrative of a
continuous battle between private enterprise and public regulation – banking simply
does not have to be this way. Unfortunately, banking as an ideal or societal
function has been hijacked by those intent on maximising their own personal
gain so, in that sense, long may the ‘badmouthing’ continue because at every
turn we must acknowledge the challenge that society faces with these large and
extremely damaging entities.

No comments:

Post a Comment

Contributions are welcome to this blog. If you would like to contribute regarding any area of financial regulation, then please feel free to email me and submit your blog entry. The content should be concerned with financial regulation, and why it matters, but this is broadly defined. The blog is open to all who are professionally concerned with financial regulation, which may range from an Undergraduate Student interested in writing on the subject, to Professors and industry participants.